Table Of Contents:

Introduction to Managerial Accounting 1(26)

Goal of Managerial Accounting 2(5)

Planning 2(1)

Budgets for Planning 2(1)

Control 2(2)

Performance Reports for Control 4(1)

Decision Making 5(1)

A Comparison of Managerial and Financial Accounting 6(1)

Internal versus External Users 6(1)

Need to Use GAAP 6(1)

Detail of Information 6(1)

Emphasis on Non-monetary Information 6(1)

Emphasis on the Future 7(1)

Similarities between Financial and Managerial Accounting 7(1)

Cost Terms Used in Discussing Planning, Control, and Decision Making 7(3)

Variable and Fixed Costs 7(1)

Variable Costs 7(1)

Fixed Costs 8(1)

Sunk Costs 8(1)

Opportunity Costs 9(1)

Direct and Indirect Costs 9(1)

Controllable and Noncontrollable Costs 9(1)

Two Key Ideas in Managerial Accounting 10(3)

Decision Making Relies on Incremental Analysis 11(1)

You Get What You Measure! 12(1)

The Controller as the Top Management Accountant 13(1)

Link To Practice:

The Changing World of the Management Accountant 14(1)

The Institute of Management Accounting 15(1)

Summary of Learning Objectives 15(1)

Key Terms 16(1)

Self-Assessment 16(1)

Interactive Learning 17(1)

Questions 18(1)

Exercises 18(2)

Problems 20(5)

Case 25(2)

Manufacturing Costs and Job-Order Costing Systems 27(48)

Cost Classifications for Manufacturing Firms 28(4)

Manufacturing Costs 29(1)

Direct Material 29(1)

Direct Labor 30(1)

Manufacturing Overhead 30(1)

Non-manufacturing Costs 30(1)

Selling Costs 30(1)

General and Administrative Costs 31(1)

Product and Period Costs 31(1)

Product Costs 31

Period Costs 3l(32)

Product Cost Information in Financial Reporting and Decision Making 32(1)

Balance Sheet Presentation of Product Costs 33(1)

The Raw Material Inventory 33(1)

Work in Process Inventory 33(1)

Finished Goods Inventory 33(1)

Flow of Product Costs in Accounts 34(1)

Income Statement Presentation of Product Costs 34(2)

Cost of Goods Manufactured 35(1)

Cost of Goods Sold 35(1)

Types of Costing Systems 36(2)

Job-Order Costing Systems 37(1)

Process Costing Systems 37(1)

Overview of Job Costs and Financial Statement Accounts 38(1)

Job-Order Costing System 39(6)

Direct Material Cost 40(2)

Direct Labor Cost 42(1)

Manufacturing Overhead 43(2)

Assigning Costs to Jobs: A Summary 45(1)

Using Job Cost Information at Eastlake Motorboat 45(2)

Relation between the Costs of Jobs and the Flow of Costs in Work in Process, Finished Goods, and Cost of Goods Sold 47(1)

Allocating Overhead to Jobs: A Closer Look 48(3)

Overhead Allocation Rates 48(1)

Selecting an Overhead Allocation Base 48(1)

Activity-based Costing (ABC) and Multiple Overhead Rates 49(1)

Activity-based costing (ABC) 49(1)

Predetermined Overhead Rates 49(1)

Eliminating Overapplied or Underapplied Overhead 50(1)

Job-Order Costing for Service Companies 51(1)

Changes in Manufacturing Practices and Product Costing Systems 52

Just-in-Time (JIT) Production 53(1)

Computer Controlled Manufacturing 54(1)

Total Quality Management 55

Link to Practice:

Product and Period Costs at Dell Computer Corporation 32(5)

Examples of Companies Using Job-Order and Process Costing Systems 37(16)

How JIT Is Creating Transportation Woes in Japan 53(3)

Can There Be Too Much Emphasis on Quality? 56(1)

Summary of Learning Objectives 57(1)

Key Terms 58(1)

Self-Assessment 58(2)

Interactive Learning 60(1)

Questions 60(1)

Exercises 61(3)

Problems 64(7)

Cases 71(4)

Process Costing 75(30)

Difference Between Job-Order and Process Costing Systems 76(2)

Product and Cost Flows 78(3)

Product Flows Through Departments 78(1)

Cost Flows Through Accounts 78(2)

Direct Material 80(1)

Direct Labor 80(1)

Manufacturing Overhead 80(1)

Transferred-in Costs 80(1)

Calculating Unit Costs 81(2)

Equivalent Units 81(1)

Cost Per Equivalent Unit 82(1)

Calculating and Applying Cost Per Equivalent Unit: Mixing Department Example 83(2)

Cost Transferred Out 84(1)

Ending Work in Progress 84(1)

Production Cost Report 85(2)

Reconciliation of Units 85(1)

Reconciliation of Costs 85(2)

Basic Steps in Process Costing: A Summary 87(1)

Answering Stacy's Questions 87(1)

Dealing With Transferred-In Cost: Packaging Department Example 88

Link To Practice:

What Type of Costing System Is Used by Kimberley-Clark Corporation? 76(3)

Production Departments for Two Manufacturing Operations 79(11)

Summary of Learning Objectives 90(1)

Key Terms 91(1)

Self-Assessment 91(1)

Interactive Learning 92(1)

Questions 92(1)

Exercises 93(2)

Problems 95(5)

Case 100(5)

Cost-Volume-Profit Analysis 105(48)

Common Cost Behavior Patterns 106(2)

Variable Costs 106(1)

Fixed Costs 107(1)

Mixed Costs 107(1)

Cost Estimation Methods 108(8)

Account Analysis 109(1)

Scattergraph Approach 110(2)

High-Low Method 112(2)

Regression Analysis 114(1)

The Relevant Range 114(2)

Cost-Volume-Profit Analysis 116(3)

Break-Even Point 116(1)

Margin of Safety 117(1)

Contribution Margin 117(1)

Contribution Margin Ratio 118(1)

``What-If'' Analysis 119(1)

Change in Fixed and Variable Costs 119(1)

Change in Selling Price 119(1)

Multiproduct Analysis 119(4)

Contribution Margin Approach 119(1)

Contribution Margin Ratio Approach 120(3)

Assumptions in C-V-P Analysis 123(1)

Code Connect Example Revisited 124(1)

Operating Leverage 125(1)

Constraints 126

Link To Practice:

Deciding to Use the Contribution Margin per Unit or the Contribution Margin Ratio Baskin-Robbins/Sears 121(5)

Operating Leverage at Microsoft 126(1)

Summary of Learning Objectives 127(1)

Appendix Variable and Full Costing 128(25)

Key Terms 133(1)

Self-Assessment 133(1)

Interactive Learning 134(1)

Questions 135(1)

Exercises 135(6)

Problems 141(7)

Cases 148(5)

Cost Allocation and Activity-Based Costing 153(48)

Purposes of Cost Allocation 154(4)

To Provide Information for Decision Making 154(2)

To Reduce Frivolous Use of Common Resources 156(1)

To Encourage Evaluation of Services 156(2)

To Provide ``Full Cost'' Information 158(1)

Process of Cost Allocation 158(3)

Determining the Costs Objective 158(1)

Forming Cost Pools 159(1)

Selecting an Allocation Base 160(1)

Allocating Service Department Costs 161(2)

Direct Method of Allocating Service Department Costs 161(1)

Allocated Budget and Actual Service Department Costs 162(1)

Problems with Cost Allocation 163(5)

Responsibility Accounting and Controllable Costs 163(1)

Arbitrary Allocations 164(1)

Unitized Fixed Costs and Lump-Sum Allocations 165(2)

The Problem of Too Few Cost Pools 167(1)

Using Only Volume-Related Allocation Bases 168(1)

Activity-Based Costing 168(8)

The Problem of Using Only Measures of Production Volume to Allocate Overhead 169(1)

The ABC Approach 169(1)

Relating Costs Pools to Products Using Cost Drivers 170(1)

The ABC Approach at Gardenrite Manufacturing: A Comprehensive Example 171(1)

Gardenrite's Costs Under the Traditional Approach 171(1)

Gardenrite's Costs Under the ABC Approach 172(3)

Pros and Cons of ABC 175(1)

Benefits 175(1)

Limitations 175(1)

Activity-Based Management (ABM) 176(1)

Remember: You Get What You Measure! 177

Link To Practice:

Some Companies That Have Cost-Plus Contracts: Raytheon Systems/Lockheed Martin/Allied Signal 157(17)

ABC and Service Firms: Valley View Hospital/First Tennessee National Corp. 174(3)

ABM Uncovers Cost Savings in Snow Removal 177(1)

Summary of Learning Objectives 178(1)

Key Terms 179(1)

Self-Assessment 179(1)

Interactive Learning 180(1)

Questions 181(1)

Exercises 181(5)

Problems 186(6)

Cases 192(9)

The Use of Cost Information and Management Decisions 201(39)

Incremental Analysis 202(9)

Additional Processing Decision 202(2)

Make or Buy Decisions 204(4)

Dropping a Product Line 208(2)

Beware of the Cost Allocation Death Spiral! 210(1)

Summary of Incremental, Avoidable, Sunk, and Opportunity Costs 211(1)

Decisions Involving Joint Costs 212(4)

Allocation of Joint Costs 214(1)

Additional Processing Decisions and Joint Costs 215(1)

Qualitative Considerations in Decision Analysis 216

Link To Practice:

Dropping Product Lines at Apple Computer 211

Outsourcing Decisions Lead to New Executive Position---the CRO 207(6)

The Sunk Cost Effect 213(4)

Summary of Learning Objectives 217(1)

Appendix Pricing Decisions 217(23)

Key Terms 221(1)

Self-Assessment 221(1)

Interactive Learning 222(1)

Questions 222(1)

Exercises 222(5)

Problems 227(8)

Cases 235(5)

Capital Budgeting Decisions 240(45)

Capital Budgeting Decisions 241(2)

Evaluating Investment Opportunities: Time Value of Money Approaches 243(7)

Basic Time Value of Money Calculations 244(1)

The Net Present Value Method 245(1)

Steps in the NPV Method 245(1)

An Example of the NPV Approach 246(2)

The Internal Rate of Return Method 248(2)

Summary of Net Present Value and Internal Rate of Return 250(1)

Estimating the Required Rate of Return 250(2)

Additional Cash Flow Consideration 252(1)

Cash Flows, Taxes, and the Depreciation Tax Shield 252(3)

Adjusting Cash Flows for Inflation 254(1)

Simplified Approaches to Capital Budgeting 255(2)

Payback Period Method 255(1)

Accounting Rate of Return 256(1)

Conflict Between Performance Evaluation and Capital Budgeting 257(1)

Wilson Air Revisited 258

Link To Practice:

BMW Invests in Greer, South Carolina Plant 242(7)

Investing in E-Business 249(2)

Estimates of the Cost of Capital 251(2)

Depreciation Tax Shield at Amazon.Com 253(7)

Summary of Learning Objectives 260(1)

Appendix A The Internal Rate of Return with Unequal Cash Flows 261(1)

Appendix B Criticisms of Time Value of Money Approaches to Evaluating Investments 262(2)

Link To Practice:

``Soft'' Benefits Related to ERP Projects 264(3)

Appendix C Present Value Tables 267(18)

Key Terms 268(1)

Self-Assessment 268(1)

Interactive Learning 269(1)

Questions 270(1)

Exercises 270(3)

Problems 273(7)

Cases 280(5)

Budgetary Planning and Control 285(40)

Use of Budgets in Planning and Control 286(2)

Planning 286(1)

Control 286(2)

Developing the Budget 288(2)

Budget Time Period 289(1)

Zero-Base Budgeting 289(1)

The Master Budget 290(10)

Sales Budget 290(2)

Production Budget 292(1)

Direct Material Purchases Budget 293(1)

Direct Labor Budget 294(1)

Manufacturing Overhead Budget 294(1)

Selling and Administrative Expense Budget 295(1)

Budgeted Income Statement 295(2)

Capital Acquisitions Budget 297(1)

Cash Receipts and Disbursement Budget 298(2)

Budgeted Balance Sheet 300(1)

Use of Computers in the Budget Planning Process 300(2)

Budgetary Control 302(3)

Budgets as a Standard for Evaluation 302(1)

Static and Flexible Budgets 302(3)

Investigating Budget Variances 305(1)

Conflict in Planning and Control Uses of Budgets 305(1)

Evaluation, Measurement, and Management Behavior 306(1)

The Preston Joystick Case 306

Link To Practice:

Sometimes a Bottom-Up Approach Is Still Top Down! 289

CEOs Say Budgeting is the CFO's Major Responsibility 288(3)

The Chicago White Sox Budget for Curve Balls 291(10)

Software for Budgeting 301(6)

Summary of Learning Objectives 307(1)

Key Terms 307(1)

Self-Assessment 307(1)

Interactive Learning 308(1)

Questions 309(1)

Exercises 309(4)

Problems 313(7)

Cases 320(5)

Standard Costs and Variance Analysis 325(33)

Standard Costs 326(2)

Standard Costs and Budgets 327(1)

Development of Standard Costs 327(1)

Ideal and Attainable Standards 328(1)

General Approach to Variance Analysis 328(1)

Material Variances 329(2)

Material Price Variance 329(1)

Material Quantity Variance 330(1)

Direct Labor Variances 331(1)

Labor Rate Variance 331(1)

Labor Efficiency Variance 332(1)

Overhead Variances 332(3)

Controllable Overhead Variance 333(1)

Overhead Volume Variance 333(2)

Comprehensive Example: Darrington Ice Cream 335(3)

Material Variances 336(2)

Labor Variances 338(1)

Overhead Variances 338(1)

Investigation of Standard Cost Variances 338(2)

Management by Exception 339(1)

``Favorable'' Variances May Be Unfavorable 340(1)

Responsibility Accounting and Variances 340

Link To Practice:

Starbucks Uses Standard Costs 326(5)

You Get What You Measure! 331(9)

Summary of Learning Objectives 340(1)

Appendix Recording Standard Costs in Accounts 341(17)

Key Terms 344(1)

Self-Assessment 344(1)

Interactive Learning 345(1)

Questions 346(1)

Exercises 346(4)

Problems 350(4)

Cases 354(4)

Decentralization and Performance Evaluation 358(41)

Why Firms Decentralize 360(2)

Advantages of Decentralization 360(2)

Disadvantages of Decentralization 362(1)

Why Companies Evaluate the Performance of Subunits and Subunit Managers 362(2)

Responsibility Accounting and Performance Evaluation 363(1)

Cost Centers, Profit Centers and Investment Centers 364(3)

Cost Centers 365(1)

Profit Centers 365(1)

Investment Centers 366(1)

Evaluating Investment Centers with ROI 367(3)

Measuring Income and Invested Capital When Calculating ROI 368(1)

Problems with Using ROI 369(1)

Problems of Over-Investment and Under-Investment 370(1)

You Get What You Measure! 370(1)

Evaluation in Terms of Profit Can Lead to Over-Investment 370(1)

Evaluation in Terms of ROI Can Lead to Under-Investment 371(1)

Other Measures Used in Evaluation 371(1)

Residual Income (RI) and Economic Value Added (EVA) 371

Link To Practice:

Subunits at Nordstrom 366(7)

Companies that Use EVA 373(1)

Using a Balanced Scorecard to Evaluate Performance 373(2)

Boeing Drops Market Share as a Performance Measure Following Financial Difficulties 375(1)

Summary of Learning Objectives 376(1)

Appendix Transfer Pricing 377(22)

Key Terms 383(1)

Self-Assessment 383(2)

Interactive Learning 385(1)

Questions 385(1)

Exercises 386(3)

Problems 389(5)

Cases 394(5)
Solutions to Self-Assessment Questions 399(2)
Glossary 401(6)
Photo Credits 407(2)
Index 409